The 14 best income funds that make the White List for dividend hunters are revealed - with yields hitting 4%

Investors looking for income or to boost their growth with reinvested dividends can now get an average yield on funds of 4 per cent, Sanlam Private Investments has revealed.

The firm’s renowned White List of its 14 best income funds has just been updated - and it reveals you can still get a better return from the equity income sector than government debt or annuities.

It says that the outlook for dividends remains strong and has delivered a selection of funds that invest across the income spectrum - from the Footsie's big hitters to those that target dividends from smaller companies.

Yields: The average dividend in Sanlam's White List is 4 per cent

Every six months Sanlam highlights the top 14 income funds from the IMA Equity Income sector, based on their performance, volatility and the income distributed over five years.

Sanlam calculates volatility by calculating how far a fund's return each month for five years differ from its overall average return. This is known as five-year standard deviation and the figure is provided to Sanlam by Morningstar. The figure is not annualised and is based upon monthly total return figures over five years.

The top 14 funds make it onto the White List, while those who have underperformed, based on their yield and volatility are named on the Black List. The report shows there is more than £7billion of investor money in the Black list.

The latest data shows the average yield from the top 14 is 4 per cent, up from 3.7 per cent at the end of 2013.

Sanlam says the outlook for dividends is strong, with Capita expecting growth of 5.4 per cent in the UK, which should be good for funds and help beat inflation and other sorts of investments.

With new
pension freedom changes coming in next year, allowing you to access your
whole pot at your income tax rate, the wealth manager also highlights that
you could do better with an income fund than an annuity.

Unicorn UK Income

Ongoing charges: 0.84 per cent

Yield: 3.9 per cent

Volatility: 3.4 per cent

The Unicorn UK Income fund is a regular at the top of Sanlam’s White List. It aims for a yield of at least 10 per cent greater than the FTSE All Share Index. Its holdings include cinema group Cineworld and brewer Marston's.

Its fund manager John McClure died last month, however Sanlam still backs its two managers Simon Moon and Fraser MacKersie to produce “solid risk-adjusted returns with their focus on smaller companies with strong cash flows and well covered dividends.”

A £100 investment over five years would have earned an income of £32.90.Its total return figure, which includes reinvesting dividends and capital growth in the fund, is 23.5 per cent a year over five years.

PFS Chelverton UK Equity Income

The fund emphasises smaller companies with high starting dividends. A £100 investment over five years would have yielded an income of £43.80. It has provided a total return of 22.48 per cent a year over five years.

Royal London UK Equity Income

Ongoing charges: 3.5 per cent

Yield: 3.7 per cent

Volatility: 3.7 per cent

The Royal London UK Equity Income fund focuses on companies in the UK that pay a consistent dividend. Its top holdings are well known dividend payers such as Shell, HSBC and Astrazeneca.

You would have got £32.70 income on a £100 investment. It has provided a total return of 18.34 per cent a year for five years.

The fund manager Martin Cholwill has said he expects merger and acquisitions activity in the mid-cap market to benefit his portfolio.

JO Hambro UK Equity Income

Ongoing charges:0.78 per cent

Yield: 3.9 per cent

Volatility: 4.2 per cent

The JOHCM UK Equity Income fund pitches itself as contrarian, aiming to beat the average yield of the FTSE All Share average and selling shares in companies that fail to keep up. The fund focuses on companies in the FTSE 350 index but can go smaller.

It is another regular feature in the list. The income on a £100 investment over five years would be £32.70. It has made a total return in the same period of 17.65 per cent a year.

It would have generated £30.60 income from a £100 investment over five years. Its total return a year for five years is 15.87 per cent.

Threadneedle UK Equity Alpha Income

Ongoing charges: 0.87 per cent

Yield: 4.2 per cent

Volatility: 3.6 per cent

The Threadneedle UK Equity Alpha Income fund aims to generate income by investing in fewer holdings but concentrating on specific types of companies and sectors.Its biggest sectors are industrials, financials, consumer goods and health.

It would have generated £31.90 income on a £100 investment over five years. It has grown 113.7 per cent in the same period. Its total return a year over five years is 17.05 per cent.

Rathbone Income

A £100 investment over five years has provided an income of £29.30. The total return a year over five years has been 15.46 per cent.

Sanlam says: ‘Carl Stick, manager of Rathbone Income for almost fifteen years, has once again fared well. When making investments he prefers to think of what can go wrong, rather than what can go well; this, along with a desire to produce a growing income, has generated some great returns.’

RBS Equity Income

Ongoing charges: 1.3 per cent

Yield: 3.8 per cent

Volatility: 3.5 per cent

The RBS Equity Income fund aims to beat the FT Actuaries All Share Index by investing mainly in UK companies, with some exposure to international shares and bonds.

A £100 investment over five years has produced an income of £29.80. It has grown 105.5 per cent over the same period. The total return a year for five years is 15.4 per cent.

Fidelity MoneyBuilder Dividend

The fund invests mainly in UK shares with a a bias towards big companies. A £100 investment would have got an income of £30.40 over five years. It has made a total return of 14.43 per cent a year for five years.

Sanlam says: ‘Michael Clarke’s Fidelity MoneyBuilder Dividend fund has a rather simple investment style: SIRP, or safety of income at a reasonable price. For an equity income investor, it is hard to think of a better starting place.’

Premier Monthly Income

Ongoing charges:0.93 per cent

Yield: 4.8 per cent

Volatility: 3.2 per cent

The Premier Monthly Income fund aims to give investors rising dividends each month. Its top holdings are big companies such as HSBC and Imperial Tobacco.

A £100 investment over five years generated an income of £33.40. Over five years you would have got a total return of 14 per cent each year.

Invesco Perpetual Income & Growth

Ongoing charges:0.87 per cent

Yield: 3.3 per cent

Volatility: 3.3 per cent

The Invesco Perpetual fundtargets an above average level of income from its holdings as well as capital growth. Its top holdings include British American Tobacco and retailer Next.

It has generated an income of £26.40 for £100 invested over five years. Its total return for five years has been 15.16 per cent a year.